Transnet would not necessarily need the bailout the state-owned logistics group has been pushing for if it leveraged its government guarantee to raise the funding it needed and focused on dealing with its operational challenges and implementing reforms, National Treasury director-general Duncan Pieterse said at the weekend.
He was speaking on the sidelines of the New Development Bank (NDB) annual meetings in Cape Town, where the bank and Transnet signed a R5bn loan agreement, the first tranche in a R18bn ($1bn) loan programme that the Shanghai-based bank has approved for Transnet, which is due to report its annual financial results today.
As the meetings closed on Saturday, the bank that was created in 2015 by the five Brics countries, also announced that it had approved a loan of up to $1bn (R18bn) to the government to finance water and sanitation infrastructure development under the municipal infrastructure grant. This brings to $6.8bn the total of concessional, low-interest loans to SA the bank approved in the past eight years, though so far only $3.6bn has been disbursed.
The bank’s new loan to Transnet makes use of the R47bn guarantee facility that the government made available to the group in December and aims to “support the improvement and modernisation of SA’s freight rail system”, said the bank said.
Transnet has been struggling with the cost of servicing its R130bn debt burden, calling repeatedly for a cash bailout or debt relief from the government, arguing that about R60bn of its debt is related to state capture and should be the government’s problem.
But finance minister Enoch Godongwana declined the requests, and instead in December granted the guarantee, with stringent conditions that require Transnet to sell noncore assets, cut costs, and implement its recovery plan and the reforms in the government’s freight logistics road map. The road map sets out a path to introduce competition and private investment to SA’s ailing freight rail and port networks.
Pieterse told Business Day that fiscal support for Transnet in the form of equity or debt relief was not inevitable if the guarantee conditions were followed. So far Transnet was doing well on this. “It is our view that it is not necessarily the case that Transnet will require any equity support from the government if they continue to leverage the guarantee to access the funding they require from the NDB and others and to resolve their operational challenges,” said Pieterse.
The purpose of the R47bn guarantee was to ensure Transnet could access the market, to deliver on operational requirements including overhauling its locomotives, wagon fleet renewal and improving the network infrastructure, he said.
Transnet CEO Michelle Phillips said the NDB’s investment was important as the group accelerated implementation of the recovery plan and economic reforms. “The modernisation programme will enhance our operational capability and contribute to the growth and competitiveness of the economy,” she said.
Godongwana welcomed NDB funding for critical logistics and water projects, saying “every cent is welcome”. Many broader government plans for infrastructure pipeline development and funding would be detailed in his October medium-term budget, said Godongwana.
The R5bn loan to Transnet is in rand, not US dollars, in line with the NDB strategy to raise its financing in local currency to 30% to protect emerging market and developing countries borrowers from taking currency risk on loans. So far the only local currency loans the bank approved were to China and SA.
NDB president Dilma Rousseff, a former president of Brazil, told journalists on Saturday that the bank approved Algeria as the newest member of the bank, which added Egypt, Bangladesh, the United Arab Emirates and Uruguay to its ranks since it decided in 2021 to expand.
The bank was created a decade ago by the original Brics members, but its membership is no longer identical. It has different rules partly to ensure it does not put its credit rating at risk.
The bank takes advantage of its triple A rating to raise funds on international capital markets which it passes on to members as development loans at lower-than-market rates. The Shanghai-based bank has approved loans to 104 projects totalling $33.3bn, of which 60% has been disbursed.
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